price to sales ratio

FAIR ISAAC CORP. $18 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 48.9 million; Market cap: $880.2 million; Price-to-sales ratio: 1.4; WSSF Rating: Average) sells products and services that help businesses evaluate customer creditworthiness. Its earnings shrank with the end of the subprime boom in 2007. But thanks to cost cuts, its earnings are now rising again, despite a drop in sales. In its third quarter, which ended June 30, 2009, Fair Isaac’s earnings per share fell 2.6%, to $0.37 from $0.38 a year earlier. But the latest earnings include an $0.08-a-share charge related to the sale of two businesses that help telecom companies detect and prevent fraudulent use of their networks. If you exclude all unusual items, per-share earnings actually rose 9.8%, to $0.45 from $0.41, even though sales fell 14.9%, to $156 million from $183.3 million. Fair Isaac continues to devote nearly 12% of its revenue to research. This helped it launch FICO08, the latest version of its widely used FICO credit-scoring system. Over 400 lenders are now using or testing FICO08, which Fair Isaac feels is twice as accurate as previous versions....

VERIZON COMMUNICATIONS INC. $32 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.8 billion; Market cap: $89.6 billion; Price-to-sales ratio: 0.9; WSSF Rating: Average) gets 70% of its profits and 45% of its revenue from its wireless division, which consists of its 55% stake in Verizon Wireless. (U.K.-based Vodafone plc owns the other 45%.) Verizon Wireless has 87.7 million customers in 50 states. The remainder comes from the traditional telephone division, which has over 35 million household and business clients in 25 U.S. states. In the past few years, Verizon has built up its wireless business and cut its reliance on its traditional phone operations. That helped its revenue rise from $71.3 billion in 2004 to $97.4 billion in 2008. Earnings fell from $2.59 a share (or a total of $7.3 billion) in 2004 to $2.36 a share (or $6.8 billion) in 2007, but rebounded to $2.54 a share (or $7.2 billion in 2008).

Alltel added 13 million wireless users

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The price-to-sales or p/s ratio is a useful tool, although it is not a precise one. Sales is the raw material of profit; that is, sales minus expenses equals profit, so profit is always less than sales. The basic rule is that a high p/s tends to mean that a stock is expensive, and a low p/s tends to mean that a stock is cheap. However, many individual stocks seem to run counter to the basic rule. Stocks with deservedly high p/s ratios can rise for lengthy periods and stocks with deservedly low p/s ratios can fall. If a company has a high price to sales or p/s ratio — 30-to-1, say — then its p/e ratio has to exceed 30-to-1, since “e” has to be less than “s”. In that case, it needs extraordinarily high sales growth rates if it is ever to earn enough profit to justify its current stock price, let alone go higher....

Canadian Tire has risen 50% from a low of $36.56 last November. That’s mainly because the company is benefiting from its innovative new store designs, which include wider aisles and better lighting. It has also done a good job of managing its financing division during the credit crisis. Moreover, it is making better use of one of its most underappreciated assets — roughly $2 billion in real estate. CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008....

CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008. Earnings jumped 43.1%, from $3.53 a share (or a total of $291.5 million) in 2004 to $5.05 a share (or $411.7 million) in 2007. The retailer’s 2008 earnings fell to $374.2 million, or $4.59 a share, because of writedowns of currency hedging contracts and gains on the sale of property and equipment. Without these non-recurring items, the company would have earned $572.5 million, or $4.85 a share....

CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel. In addition, CAE gets 90% of its revenue from customers outside of Canada. A low Canadian dollar increases the value of these sales....

Oil has dropped from $74 U.S. a barrel in June to $60, and could fall further. We depend on resource industries more than the U.S. does, so the drop in oil and other commodities pushed down the Canadian dollar from $0.92 U.S. in May to $0.86 today. CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel....

The recession is driving down advertising revenue for many newspaper publishers and information providers. As well, more people are turning to the Internet as their main source of information. We feel these three information providers will overcome the current downturn. As market leaders, their well-known brands and strong reputations will continue to attract customers and advertisers. As well, all three are aggressively cutting their costs. THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%)....

INDIGO BOOKS AND MUSIC INC. $13 (Toronto symbol IDG; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 24.5 million; Market cap: $318.5 million; Price-to-sales ratio: 0.3; SI Rating: Average) has started paying quarterly dividends of $0.10 a share. The annual rate of $0.40 a share yields 3.1%. Indigo is also doing a good job of increasing its sales during the recession. In its latest quarter, same-store sales rose 3.8% at its Chapters and Indigo superstores and 6.2% at its mall-based stores. That’s partly because the company has moved into non-book merchandise, such as educational toys. Indigo plans to start selling toys in all 90 of its superstores, up from 15 today. In light of its new dividend, we’ve raised Indigo’s SI Rating to “Average” from “Extra Risk.”...

TRANSCONTINENTAL INC. $8.17 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $660.1 million; Price-to-sales ratio: 0.3; SI Rating: Average) gets 50% of its revenue, and 40% of its profits, from its direct-marketing business. Through this division, Transcontinental designs direct mail and other advertising campaigns. It also analyzes customer-purchasing data. These services help its clients increase their sales and build customer loyalty. The company also has a commercial-printing business (25% of revenue, 30% of profits), and publishes newspapers and magazines (25% of revenue, 30% of profits). The recession continues to drive down demand for Transcontinental’s direct-marketing services, particularly in the U.S., where direct-marketing revenue is down 50% from a year ago. In response, the company recently closed a direct-mail plant in Pennsylvania. It has also merged some printing plants and scaled back on newspaper and magazine publishing. These moves should save Transcontinental $100 million a year. It expects to realize $75 million of these savings in its current fiscal year, which ends October 31. The company was also forced to write down $169.3 million of goodwill related to acquisitions, mostly at its commercial-printing division. Transcontinental has experienced a drop in volumes as customers print fewer newspapers, books, magazines and advertising flyers during the recession. This was a non-cash charge, and had no impact on Transcontinental’s cash flow or cash balances....